Entrepreneurship: the practice and

mindset. By Heidi M. Neck author.

Emma L. Murray author.; Christopher P.
Neck author. 2024 3rd edition.

CHAPTER 4 CREATING AND

RECOGNIZING NEW OPPORTUNITIES

iStock.com/phototechno

Chapter Outline
• 4.1 What Is “Opportunity” in Entrepreneurship?

• 4.2 Opportunities Start With Thousands of Ideas

• 4.3 Four Pathways to Opportunity Identification

• 4.4 The IDEATE Method for Creating New Opportunities

• 4.5 Challenges Moving From Idea to Opportunity

Learning Objectives
• 4.1 Explain how the entrepreneurial mindset relates to opportunity recognition.

• 4.2 Employ strategies for generating new ideas from which opportunities are born.

• 4.3 Explore four pathways to opportunity identification.

• 4.4 Practice the IDEATE Method to generate high-potential ideas.

• 4.5 Recognize challenges different people face moving from idea to opportunity.

Applying what you learned about mindset in Chapter 2, it is evident that an entrepreneurial mindset
positions you to identify entrepreneurial opportunities and to take action. Indeed, this has been
demonstrated time and again by countless entrepreneurs’ stories across diverse industries, whether
for-profit or nonprofit, whether in a startup context or within an existing corporation. All the
entrepreneurs featured throughout this text—including Juan Giraldo, founder of Waku; Boyd Cohen,
founder of Iomob; and Brandale Randolph, founder of 1854 Cycling Company—have found ways to
identify new opportunities that address unmet needs in the marketplace and solve significant
problems. What’s different, however, is how these entrepreneurs found, created, or identified their
opportunities. We’ll get to the how a little later. First, let’s take a closer look at what opportunity really
means.

WHAT IS “OPPORTUNITY” IN
ENTREPRENEURSHIP?
Learning Objective
• 4.1 Explain how the entrepreneurial mindset relates to opportunity recognition.

Opportunities are everywhere. You might have an opportunity to learn a new dance or an opportunity
to take a trip to a place you’ve never been. A friend calls and tells you they have an extra ticket to the
sold-out Trevor Noah show and asks if you want to go. You might have the opportunity to wash your
car as soon as the sun appears after a week of rain. The opportunity to get that dog you always
wanted finally emerges when your best friend decides to enlist in the military and asks you to keep
Chip, the rambunctious Goldendoodle. Or you may have an opportunity to raise your hand during
class and say something incredibly brilliant—and the whole class applauds! The list could go on, but
these are all opportunities according to the general definition of the term as presented in
the Cambridge Dictionary: “an occasion or situation that makes it possible to do something that you
want to do or have to do, or the possibility of doing something.”1

This chapter, however, is not about just any kind of opportunity; it’s about entrepreneurial ideas that
have the potential to become viable new business opportunities, either as a startup or within an
existing enterprise. There are many definitions of “business opportunity,” but most reference three
central characteristics: potential economic value, novelty or newness, and perceived desirability. 2 This
includes our definition of opportunity in Chapter 2: “a possibility of generating value through the
introduction of unique, novel, or desirable products, services, and even processes that have not been
previously exploited in a particular context.”

An idea that constitutes an opportunity, whether it is a product, service, or technology, must be

differentiated from existing ideas in some way. Newness or novelty can mean new to a context;
consider for instance the chain PICK, a yogurt shop (not a new idea) introduced in Kuwait (a new
geographic area) that grew to three stores in the country and is now branching out with a store in
Riyadh, Saudi Arabia. Desirability simply means that enough people want or need the “idea” and are
willing to pay for it. If the criteria of new, novel, and desirable are met, then the idea may in fact be
capable of generating value.
Value can take many forms. As discussed in Chapter 2, value can be at a societal level or a personal
level. For an opportunity to lead to business formation, economic value as the capacity to generate
profit must be present. Without the generation of economic value, the business will not survive. Two
other forms of value—social value and environmental value—are less understood but equally
important. As discussed in Chapter 3, an opportunity has social value if it helps to address a social
need or creates social good. Environmental value exists if the opportunity protects or preserves the
environment. Startup Bios Urn, headquartered in Spain, created a biodegradable urn in which to grow
trees from human ashes to address the environmental problems of a growing population (many
people don’t have the land to bury their loved ones) and the polluting effects of traditional burials. 3 All
forms of value, however, are predicated on the assumption that a market exists with enough people to
buy your product or service. This does not mean a large market is required; countless successful
businesses run on a small scale, catering to a market that is limited in one way or another. The key is
to scale the business and its costs to the size of the market—to balance supply with demand.

An example of a small market business success is a retail clothing company TomboyX based in
Seattle, Washington, which designs and sells apparel to everybody regardless of their gender. The
LGBTQ+ community is rapidly growing, and TomboyX has achieved success by building a brand with
the goal of helping everybody feel comfortable in their own skin.4

Yet before any opportunity can be realized, there is an idea. By definition, an idea is any conception
existing in the mind as a result of mental understanding, awareness, or activity. 5 The difference
between an idea and a business opportunity is related to the three central characteristics just
discussed: novelty or newness, desirability, and value. There is no such thing as a bad idea—just not-
so-good opportunities!

Innovation, Invention, Improvement, or Irrelevant?

Of course, not all ideas are created equal, and not all ideas are venture opportunities. Part of
recognizing an opportunity is the ability to evaluate ideas and identify those with the highest likelihood
of success. One framework for doing this is to rate an idea on four different dimensions: The idea may
be an innovation, an invention, an improvement, or irrelevant. Of these, innovations and inventions
are high in novelty, while improvements and irrelevant ideas are low in novelty (see Figure 4.1).
Novelty reflects the degree or level of newness an idea has, whether the idea is new to the world, new
to an industry or market, new to a particular company, or a new addition to an existing product. 6 In the
“new to the world” category, you might find the commercialization of artificial intelligence and machine
learning (an innovation in Figure 4.1) or simply adding natural ingredients to toothpaste (perhaps an
improvement in Figure 4.1).
Description
Figure 4.1 Idea Classification Matrix

Credit: Neck, H. M. (2010). Idea generation. In B. Bygrave & A. Zacharakis

(Eds.), The portable MBA in entrepreneurship (4th ed., pp. 27–52). Wiley.
Reprinted with permission from John Wiley & Sons.

A successful idea scores highly as an innovation if the product or service is novel, useful, and
valuable. A product or a service is considered useful and valuable if it meets expectations, satisfies
customers’ wants or needs, and inspires people to pay for it. Today’s smartphone and the basic cell
phone of the 1980s are both good examples of a product that meets all the requirements of a
successful innovation.

Innovations and inventions are often paired together, but the difference between them lies in
demand. Inventions, by definition, score high on novelty, but if an invention does not reach the market
or appeal to consumers, then it will be rendered useless. Inventions that succeed in finding a market
become innovations.
As an example of an invention that developed into an innovation, consider the story of Dr. Spencer
Silver, the inventor of Post-it® notes.7 More than 35 years ago, Silver was a scientist working for 3M.
His task was to devise a new adhesive, something stronger and tougher than had ever been seen
before. During his experiments, he discovered an adhesive that was none of those things—although it
did stick to surfaces, it didn’t bond tightly to them. For years, Silver tried to persuade his colleagues
that he had found something meaningful—the only problem was that he had no idea what the
adhesive could be used for. Art Fry, another 3M scientist, had a problem of his own. Every time he
tried to bookmark particular pages of his hymn book for choir practice with pieces of paper, they
would fall out. Fry remembered Silver’s discovery, and they ended up working together to develop
what is now known as the Post-it® note. The Post-it® note found huge success because it was novel,
useful, and practical—but it became an innovation of high value only when it hit the market.

Post-it® notes.

Elnur/Shutterstock

Yet ideas do not always need to be unique or novel to appeal to customers. There are many ideas
that focus on improvement of existing products. Take folding sunglasses, serrated ice cream scoops,
or liquid paper, for instance. Each product has been revisited and improved on. These improved
products may not be high in novelty, but because many people will find them useful to a degree, a
strong market will exist for them.

Finally, some ideas fall into the irrelevant category, scoring low on both novelty and usefulness. The
food and beverage industry, in particular, has experimented with some changes over the years that
have failed to meet consumer expectations. In 2022, inspired by the global gaming community, Coca
Cola released a “pixel flavored soda” called Coca Cola Zero Sugar Byte. The beverage, first launched
in the video game Fortnite, was described as “the first-ever Coca-Cola flavor born in the metaverse”
and “a beverage that transcends the digital and physical worlds.” When the product finally went on
sale, many consumers were left feeling underwhelmed, and they weren’t shy about posting their
criticisms of the new drink’s taste online.8
However, it is difficult to pigeonhole ideas into neat categories. How can we really predict whether an
idea is inventive, innovative, or irrelevant? Something we perceive as irrelevant and useless might
appeal to someone else. For example, who would have thought that fidget spinners would become so
popular? Or that mood rings would turn into such a trendy fashion item?9 Or that OddZon Products
Inc., the company that created the Koosh Ball—a ball made of colorful rubber bands—would sell to
toy and game maker Hasbro for $1 million?10

Even the most apparently bizarre inventions can find a home. Take Billy Bob Teeth, invented in the
1990s. Fake rotting teeth might seem ludicrous to some, but more than 20 million units have been
sold, generating more than $40 million in sales.11

Fidget spinners.

iStock.com/filadendron

Opportunities spring from ideas, but not all ideas lead to opportunities. Although anyone can produce
a huge range of ideas, not everyone knows how to turn an idea into a valuable, revenue-generating
opportunity. Making an idea a reality is a process that requires time, resources, commitment, and a
great deal of work, which can seem a little daunting to many of us and often depends on where we
are in life. But if it were easy, wouldn’t everyone do it?

As the idea classification matrix illustrates, most opportunities in entrepreneurship demand high value
and some degree of novelty. But how do we identify the right opportunities? The first step in the
opportunity identification process is generating as many ideas as we can, for it is out of thousands of
ideas that opportunities are born.

Entrepreneurship in Action
Mixtroz, Ashlee Ammons and Kerry Schrader
Birmingham, Alabama, USA
Kerry Schrader (left) and Ashlee Ammons (right).

Courtesy of Ashlee Ammons

Mother and daughter dynamic duo Kerry Schrader and Ashlee Ammons attended several networking
events with “the sole purpose of making new business connections.” At one of the events, the
conference organizer asked Ashlee to strike up a conversation with someone wearing a name tag
with the same color dot she had on her own name tag. “I found it pretty awkward and a bit antiquated,
so I chose not to do so and eventually left the event disappointed without any meaningful connections
or opportunities,” recalls Ashlee. As a corporate HR executive, Ashlee’s mother, Kerry, had faced
similar experiences, and the duo soon learned that many people have those same wasted, awkward,
unfulfilling experiences at networking events. While Ashlee and Kerry knew of multiple types of
software that helped manage the registration, sign-up, and follow-up processes for networking events,
they couldn’t find a software “that was going to be the catalyst for connecting meaningfully with people
when you were already somewhere.” To solve this problem and revolutionize the event management
industry, Kerry and Ashlee founded Mixtroz (which stands for “mixer” and “intro”), an online platform
that groups event attendees through real-time surveying.

Mixtroz provides engagement services to colleges, universities, business enterprises, and people
hosting large-scale events or gatherings. Networking is critical in these types of organizations, yet
they often lack a good way of getting people to network with one another. Ashlee recalls how, when
she was an orientation leader in college, “I was welcoming students to campus and seeing how they
were trying to integrate into campus life and finding their friends. Those early conversations may
seem light, but they are actually not because if a student feels connected to their campus, they’re
more likely to stay.” In addition to the education segment, Mixtroz also targets the event segment,
such as conferences and large gatherings where people want to connect with like-minded people they
don’t know. In the enterprise segment, businesses use the platform for team building, employee
orientation, and breaking down silos across business departments. Though the education, event, and
enterprise segments are different, the purpose of Mixtroz is the same: to connect people in real time
based on real data.

Mixtroz’s software provides a two-sided value proposition that includes data collection and
engagement. The app collects a custom dataset based on the questions participants answer in order
to get sorted into a group. “We figured out how to survey with an actionable algorithm.” For example,
Mixtroz provides its enterprise customers (companies) with soft, intangible data, unlike the basic
information stored in a human resources information system, such as demographics and contact
information. “This makes it valuable for the client to understand their employees better while also
helping the same employees to engage in feeling like a part of the community,” says Ashlee.

Opportunity recognition is a crucial phase for entrepreneurs. Ashlee believes not every problem
needs a solution:

One half of entrepreneurship is having a good idea and being able to

execute that idea. However, the other half identifies whether the world is
ready for the idea and if the current culture accepts it. There’s been so
many stories of entrepreneurs who were just a couple of years before the
time was correct for their product or service to be widely adopted. A lot of
people had great ideas, but they didn’t take off because the world wasn’t at
a place where it was ready to accept them.
Therefore, Ashlee suggests that entrepreneurs devise a way to mimic their idea using low-fidelity
testing. She also advises entrepreneurs to get their product into prospective customers’ hands to see
if they would use it. “It is great to learn early on that people don’t want your product before you have
invested a lot of time and money in it.”

Both Ashlee and Kerry realized that entrepreneurship is not for the faint of heart. “I think
entrepreneurship severely prepares you for anything else life throws at you. In the beginning, when
we would apply for funding or accelerator programs, we would get so excited at the possibility of this
one thing that if it didn’t happen, it would feel soul-crushing. I think as we matured, we started doing
things differently,” says Ashlee. The business continues to grow, and the team is excited about
Mixtroz’s future. As Kerry notes,

Now more than ever, the value of meaningful human connectivity and
custom data is being acknowledged and sought out by leaders across our
current three target markets. Our future, personally and professionally, is
bright. My hope, in addition to Mixtroz completing fundraising and growing,
is that our entrepreneurial journey positively impacts others, especially
women. It will be hard to celebrate success without knowing that the ability
to be an entrepreneur and thrive, not just survive, is equally accessible to
women as it is to men. Team Mixtroz wants to and will strive to play a
significant role in the long overdue complete removal of the shattered
ceiling.

Critical Thinking Questions

1. What is the big problem being solved by Mixtroz?
2. Follow Mixtroz on Instagram. How is the company impacting the world beyond its product
offering?
3. As you read this chapter, what opportunity pathway did Ashlee and Kerry use to identify the
Mixtroz opportunity?
4. What made Mixtroz a valuable business idea?

Source
Ashlee Ammons & Kerry Shrader, interview with Heet Ghodasara, November 29, 2022.
Google for Startups. (n.d.). Mixtroz transforms corporate events—and their business
model—to meet the needs of a virtual world. https://startup.google.com/stories/mixtroz/

Mixtroz website. https://www.mixtroz.com/

OPPORTUNITIES START WITH

THOUSANDS OF IDEAS
Learning Objective
• 4.2 Employ strategies for generating new ideas from which opportunities are born.

The first step in creating and identifying opportunities is idea generation; the more ideas we generate,
the greater the likelihood we will find a strong opportunity. Remember, an idea is simply any
conception that exists in the mind as a result of mental understanding, awareness, or activity. This
means an idea can be anything. We tend to prejudge ideas and immediately think to ourselves either
“This is horrible, don’t share with anyone!” or “This is great!” without any evidence that the idea is
either great or horrible! The spectrum of “horrible” to “great” is long, and all ideas should be accepted
for what each is: just an idea.

Quantity of ideas matters, too. Linus Pauling, a Nobel laureate in chemistry (1954) was considered
the leading chemist of his time because of his work on chemical structure (what holds atoms together
in molecules).12 As one can imagine, the life of a scientist is filled with many ideas, lots of
combinations, relentless searching, learning, relearning, testing, and retesting. As Pauling noted, “The
way to get good ideas is to get lots of ideas and throw the bad ones away.”13

The Myth of the Isolated Inventor

Here’s a quick exercise: Take a minute, close your eyes, and think of an idea for a new business.
Ready? Think hard. How many ideas did you come up with? If you have come up with very few or no
ideas at all, you are in good company. Ideas don’t just spring fully formed into our minds, although the
myth of the isolated inventor, working tirelessly in their workshop, lab, or even garage, may lead us to
think so.

In fact, as recent literature shows, history’s greatest inventions arose very differently from what we
may have been taught. For instance, Orville and Wilbur Wright did not come up with the idea of the
airplane. They researched the history of flight, drawing knowledge from Da Vinci’s aeronautical
sketches and the designs of gliders from German pioneer of aviation, Otto Liliental, before becoming
the world’s first team to fly a heavier-than-air machine. The Wright Brothers may not have been the
originators of the airplane, but they did solve one major problem of airplane developers: stability.
Inspired by birds in flight, they used a cable to warp the wings and turn the rudder to control the roll of
the plane. The Wright Brothers took existing information and applied it to their own aviation designs.
Their work inspired generations of future aviators to make air transport more useful and commercially
valuable.14

In some instances, parties were competing to offer the best, most accepted, solution first. One of the
most famous duels in innovation history is the one between Thomas Edison and Nikola Tesla. Edison
was best known for perfecting the light bulb by creating the first commercially practical incandescent
light, while the lesser-known Nikola Tesla was a Serbian immigrant who originally worked for Edison
but resigned because of a pay dispute. In the late 1880s, Edison and Tesla were involved in the War
of the Currents, with Edison advocating the use of direct current (DC) for power distribution and Tesla
supporting alternating current (AC), which could be used to power large cities. In an effort to discredit
Tesla’s AC invention, Edison and his employees engaged in publicity stunts, such as the electrocution
of animals, to demonstrate the dangers of AC. However, these tactics did not succeed in the long
term. In the 1890s, Tesla won the bid to power Chicago’s World’s Fair and Niagara Falls using AC—
the same electrical current that is still used today by most power distribution systems. Edison’s DC
innovation is largely used for low-voltage battery-powered devices, such as laptops, smartphones,
and portable generators.15

Many of the best-known inventions exist because of both a substantial number of people working on
them simultaneously and improvements made by groups over the years or even centuries. Many
sewage treatment plants and irrigation systems today use a rotating corkscrew type of pump known
as Archimedes’ screw, which dates back to the 3rd century BCE. Although its invention is attributed to
the Greek scientist Archimedes, chances are he did not devise it on his own—and even if he did, it
has been modified and adapted in a multitude of ways around the world. Other inventions with long
and varied histories include concrete (developed by the Romans around 300 BCE); optical lenses
(another ancient Roman discovery, made practical in 13th-century Europe); gunpowder (invented in
the 9th century in China); and vaccinations (first developed in the 1700s but not widely implemented
until more than a century later). As history shows, there is very little reason to credit just one person
for the creation of a novel product or service.16

Regardless of who is ultimately responsible for the business opportunity, we can safely say that each
of those successful products or services began with an idea. Opportunities emerge from thousands of
ideas, but how can we learn to generate thousands of ideas? Let’s take a look at some strategies we
can use for idea generation. Keep in mind, however, that all ideas are equal! Later in the chapter, and
certainly later in the text, we’ll talk more about assessing whether good ideas are entrepreneurial
opportunities.

Entrepreneurship Meets Ethics

The Ethics of Taking Someone’s Idea
Consider this scenario: You’re on a public internet forum or social networking site, and someone has
posted an idea for an innovative new product. Despite the enthusiastic responses, the person tells the
forum that he wants to work on the idea as a hobby rather than turn it into a business. You are one of
those people who sees huge potential in the idea, but what do you do next? If you take the idea and
run with it, would you consider this ethical?

But what would happen if the message was posted on a private forum set up specifically for
entrepreneurs to swap ideas in a secure environment based on trust? What do you do then? Using
someone else’s idea in this scenario may not be illegal, but exploiting an idea from one of those
members could be considered a breach of trust and therefore unethical.

Perspectives from prominent figures in the startup world may enlighten us on this ethical quandary. In
short, some feel that the value of a startup comes from its founders’ learning, discovery, and
especially iteration on an idea, not the idea itself. In a talk at Y Combinator’s “Startup School,” venture
capitalist and computer scientist Paul Graham explained his theory: “[people] think creating a startup
is just a matter of implementing some fabulous initial idea. And since a successful startup is worth
millions of dollars, a good idea is therefore a million-dollar idea. . . . Our instincts tell us something so
valuable would not be just lying around for anyone to discover.” Graham points to the fact that people
post their ideas to freely available online forums like www.ideaswatch.com, which exist specifically for
startup inspiration, to bolster his point. He continues, “Actually, startup ideas are not million-dollar
ideas, and here’s an experiment you can try to prove it: just try to sell one. . . . The fact that there’s no
market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word,
that startup ideas are worthless.” Graham seems to be suggesting that taking an idea posted on a
public forum is perfectly fine given that those posted ideas are worthless until they are acted upon.

Silicon Valley serial entrepreneur Steve Blank provides a somewhat different perspective. He was
once the victim of having not just an idea but an entire investor pitch slide deck stolen, which went on
to be funded and founded under a different name. In a blog post reflecting on how his company
triumphed through the experience, he recalls, “Our competitor was executing on hypotheses we had
developed 9 months ago, and their strategy remained static. We on the other hand, had moved on. . .
. Our copycat competitor was now publicly locked into a company and product strategy that was
obsolete and untenable. Over the next two years we left them in the dust.” Ideas are not
copyrightable, but the expression of a novel and concrete idea is what constitutes protectible
intellectual property. The theft of Blank’s slide deck was illegal and unethical, and the competitor
failed without properly iterating on the idea and pivoting their business strategy. The question remains
unanswered by the law, however: how developed does an entrepreneurial idea have to be before it
becomes unethical to copy it?

Collaborating with other entrepreneurs during the ideation stage of launching a venture can be risky
and rife with ethical quandaries. When sharing ideas and prototype sketches on cocktail napkins face-
to-face, you may feel more bound to keep the confidence of the idea’s originator, but would your
sense of obligation extend to a faceless forum poster? If you agree with one of the entrepreneurs
quoted that execution is more valuable than ideas, where would you draw the ethical line between
running with someone else’s idea and stealing someone else’s work toward an idea? One way to
make the right decision is to examine your own ethical standards and ask, “If the situation were
reversed, what would I think?” Sometimes looking at your dilemma from the other person’s point of
view creates greater clarity in terms of right and wrong. Seeking advice from mentors you trust and
respect are ways to test the efficacy of your actions. One rule of thumb to help you handle online
ethical dilemmas is this: Ask yourself if your behavior was to be published on the front page of
the Wall Street Journal, would you be okay with it?

Critical Thinking Questions

1. If someone posts an entrepreneurial idea on a public forum, do you assume they are OK with
someone else executing this idea and turning it into a business?
2. Sharing ideas with others is part of the Entrepreneurship Method in this book. Is it possible to
share new ideas and protect them at the same time?
3. What other rules of thumb (besides the Wall Street Journal front page test) could be used to
help you navigate ethical situations?

Sources
Blank, S. (2009, December 7). Someone stole my startup idea—part 2: They raised
money with my slides?! Steveblank.com. https://steveblank.com/2009/12/07/someone-
stole-my-startup-idea-–-part-2-they-raised-money-with-my-slides/

Graham, P. (2005, October). Ideas for startups. Paulgraham.com.

http://paulgraham.com/ideas.html

Build Your Idea-Generation Skillset

There are countless ways to generate ideas, from the informal (but not very effective) type just
illustrated—“close your eyes and think of an idea!”—to more structured idea-generation techniques
that we will explore shortly. As we talked about at the beginning of this text, entrepreneurship is all
about practice. To get better at ideation, there are some strategies you can begin to employ to help
you identify thousands of ideas! Figure 4.2 highlights six strategies to practice to build your idea-
generation skillset.
Figure 4.2 Strategies to Build Idea-Generation Skills

Scanning
To address the question of why some people spot opportunities and some don’t, researchers have
suggested that opportunities are everywhere waiting to be discovered, but discovery is made only by
those entrepreneurs who have alertness: the state of being ready to think, notice, understand, and
act in a particular situation.17 Entrepreneurs in this alert state have the ability to identify opportunities
by scanning their environment. They become alert to existing opportunities through their daily
activities and can often see new possibilities based on their prior knowledge. Prior knowledge is
information gained from a combination of education, life, and work experience. Successful
entrepreneurs often have prior knowledge with respect to a market, industry, or customers, which they
can then apply to their own ventures.18 Prior knowledge in conjunction with alertness creates the
ability to scan the environment for new opportunities.
Allen Lim, founder of Skratch Labs, a company that provides tasty, natural hydrated food and drinks
to athletes, was able to apply the knowledge he gained while working as a sports scientist and coach
for professional cycling teams.19 Similarly, Jeffrey Brown, the owner and CEO of Brown’s Super
Stores, Inc., which operates ten ShopRite supermarkets in the most impoverished and crime-ridden
parts of greater Philadelphia, was able to apply the knowledge he gained from local community
members to set up successful grocery stores where other stores had failed.20 For instance, Brown
learned how his future customers felt disrespected by the way some stores would place certain
products—as if customers were likely to steal them—and disappointed by the lack of certain items
they desired, such as spices from North Africa or halal foods. Furthermore, the stores were staffed by
outsiders who didn’t really care to be there.

Allen Lim was able to use his prior knowledge to build his company Skratch Labs.

Courtesy of Skratch Labs

Brown used this knowledge to stock preferred food items, and he expanded his work into the local
community by convening regular neighborhood meetings; hosting cooking classes; partnering with
local organizations and different community groups to fight hunger, prevent violence, and prepare
underprivileged youth for viable careers; and hiring formerly incarcerated community members.
Today, the company employs 2300 associates, all committed to making a difference and supporting
the Brown Super Stores’ mission “to bring joy to the lives of the people we serve.”

The origin of rugby football is another interesting example of alertness.21 Until 1860, footballs were
made of animal bladders, which were blown up into a plum or pear shape then tied and sealed.
Because the bladders were constantly exploding, shoemakers were often called upon to encase the
bladders in leather to protect them from bursting so easily. A young shoemaker in the town of Rugby,
England, named Richard Lindon was employed in this trade, and he enlisted the help of his wife to
inflate the bladders by blowing air into them. However, after his wife died from an illness attributed to
contact with infected pigs’ bladders, Lindon started to look for a safer option. He found a way to
replace the bladders with inflated rubber tubes and used a pump to inflate the footballs without any
contact with the mouth. He is credited with inventing both the oval rugby football we know today as
well as the hand air pump. The point is that although Lindon had not started out looking to
revolutionize the football, he was able to recognize an opportunity when it appeared.
Richard Lindon with enhanced rugby balls.
Niday Picture Library/Alamy Stock Photo

Connecting
Connecting is consciously making links between concepts to create new concepts. This can be done
through bisociation and pattern recognition. Bisociation is a mental process that allows us to connect
two things that are seemingly unrelated or unconnectable into something new.22 Think internet
crossed with bookstore (the beginning of Amazon). Bisociation allows us to use two incompatible
concepts (at least, concepts we believe to be incompatible) to create something new. For example,
what if you connected the ping pong paddle to the tennis court? Would the creation of pickleball come
to mind? If you Google “random word generator,” you’ll find a site that gives you random words. Try to
connect these words to generate something new.

Research among highly experienced entrepreneurs has shown that they identify opportunities by
using prior knowledge to make connections between seemingly unrelated events and trends—
bisociation. Many studies have supported that entrepreneurs think this way.23 Think back to Dr.
Spencer Silver, the inventor of Post-its®. Silver was not actively searching for an opportunity to invent
a specific adhesive to create sticky notes, but he became alert to the idea through his scientific
experiments. He then collaborated with a colleague to create a product that would prove to be a huge
market success. Silver’s experience adheres to this concept of alertness, which suggests we are
capable of recognizing opportunities even when we are not looking for them.

Underlying our ability to bisociate as humans is the concept of pattern recognition. Our brain is
constantly processing in the background and recognizing patterns that allow us to interpret what we
are seeing in order to make decisions. Entrepreneurship researcher Robert Baron questions why
wheeled luggage was used for decades by flight attendants and pilots before being adopted by the
majority of travelers today. His answer is pattern recognition—or the initial lack thereof. Baron says,

Perhaps because no one “connected the dots” between several pertinent

trends: a large increase in the number of passengers, growing problems
with checked luggage, expansion in the size of airports, and so on. Once
these trends were seen as connected, the benefits of wheeled luggage
became apparent, and this product soon came to dominate the market.24

Lateral Thinking
Lateral thinking uses indirect and creative approaches to solve problems. 25 As a mental process, it
helps us look at problems from different angles—angles that we don’t typically use. The result is often
a more creative, less obvious solution or one that makes us go, “Aha!” Table 4.1 compares linear and
lateral thinking.

Linear Lateral
What Reaching the correct solution in a Effectiveness of creating a new
matters systematic, step-by-step logical conclusion; lateral thinking
approach does not always guarantee that
a solution can be found, but it
does increase the chance
of finding a better solution
Objective Reaching a solution through a Seeks to move to develop a
pathway or direction previously new direction through a
defined or used; evidence driven restructuring of ideas; find
 Linear Lateral
solutions and approaches that
are less obvious
Process A sequencing of ideas; the steps Can skip steps, make jumps,
already established must be no matter the sequence of
followed to reach the correct these; the validity of the
solution, and skipping steps alters solution does not depend on
the response; each step is whether the path has been
dependent on the previous one correct; importance is given to
the creation of the new
conclusion
Source: Adapted from Tuarez, J. (2021, January 23). Linear thinking vs lateral thinking (A complete
guide). NeuroTray. https://neurotray.com/linear-thinking-vs-lateral-thinking/
Linear thinking is in our comfort zone; we use this type of thinking daily. For example, to solve a
simple algebra problem requires linear thinking. For example: 4x + 2 = 10. To solve for x, the logical
approach is x = (10 – 2) ÷ 4; therefore, x = 8 ÷ 4, which is 2. Lateral thinking comes in, for instance, in
solving riddles. Can you solve these riddles?

Riddle 1: What can be seen in the middle of March and April that cannot be seen at the beginning or
end of either month?26

Riddle 2: There are six eggs in a basket. Six people each take one of the eggs. How can it be that
one egg is left in the basket?27

The answers can be found in the endnotes of this chapter. How did you do? Lateral thinking is not
easy, but when practiced, you might find that you become better at seeing problems from different
angles that result in more creative solutions. You know you are using lateral thinking when the answer
is not immediately obvious but makes complete sense in hindsight. You see the logic after you reach
the answer rather than follow the logic when thinking in a more linear way. Edward DeBono coined
the term “lateral thinking” and said, “It is always possible to describe a logical pathway in hindsight
once a solution is spelled out. But being able to reach that solution by means of this hindsight
pathway is another matter.”28

The “nine-dot exercise” (Figure 4.3) illustrates the limitations of our thinking. The challenge is to
connect nine dots by drawing four straight lines without lifting your pen and without backtracking. If
you have difficulty completing the task, you may be thinking too linearly. Hint: Look beyond the
imaginary constraint of the box. One solution can be found at the end of this chapter.
Figure 4.3 Nine-Dot Exercise

Source: Raudsepp, E., & Hough, G. (1977). Creative growth games. Jove. The
nine-dot exercise is referred to as “Breaking Out” and is found on page 29. The
solution is on page 113.

Imagining
Imagination is an unlimited and renewable resource we all have. Consider this thought experiment
offered by Stanford professor Tina Seelig. 29 Imagine a present sitting on the table in front of you. Pick
it up and feel its size, its weight. Visualize how the present is wrapped—what color is the paper? Does
the paper have patterns? Now, without opening the box, imagine what is in the box. One you have an
image in your mind of what’s in the box, unwrap and open the box. What do you see? Have fun with
this part! You might be surprised that what you thought was in the box when it was wrapped and what
was in the box when you opened it were not the same. Now look back in the box you just opened.
Imagine there is another gift. Take it out. What is it? Set that gift aside and look in the box again. Pull
something else out. What is it? You could continue to pull gifts out of the box all day because your
imagination is a great resource for generating new ideas.

You just have to use it. You can employ imagination-based strategies that involve suspending
disbelief and dropping constraints in order to create unrealistic states or fantasies. For example, the
Gillette team imagined themselves as human hairs to help them come up with ideas for a new
shampoo. Though playful and even absurd, such freeing behavior allows our minds to think in ways
we never thought possible.

Now, let’s combine the gift thought experiment and the Gillette example. What if we wanted to create
an amazing virtual shopping experience for clothing and accessories? What does the environment
look like? How do you try on clothes? Are there salespeople available to help? Can you customize the
clothes? Can you save things to try on another day? Perhaps in your attempt to create an amazing
virtual shopping experience, you come up with a brand-new way to shop physically. The imagination
is a wonderful gift.
Observing
We each observe the world through a unique perspective, and what and how we observe can impact
what we discover and do. However, sometimes we need to change our perspective in order to see the
world in new ways. When we do that, we discover new ideas!

Focused observation as it relates to generating new ideas is about shifting your attention outward in
order to look at the world in a way you haven’t before. This contrasts with an inward focus, in which
we interpret everything we see in terms of how it impacts us. Imagine, for instance, that you are on an
airplane and a baby is crying nonstop. An inward-focused response may be, “That baby is so
annoying.” An outward observation may be, “That baby’s mother must be very stressed.” This
outward observation may lead to ideas for new products or services that help parents with their
children on airplanes. The result of your inward focus? Pure frustration, impatience, and probably
turning up the music streaming from your ear buds!

In the next chapter, we will focus on how observation is the cornerstone of design thinking, but for
now, let’s simply agree that just because we see (inward focus) the world doesn’t mean we are
observing (outward focus) the world.

Collaborating
Collaboration requires group interaction; ideas are generated as a group, and group members build
on each other’s ideas. Through collaborating techniques, group members enhance and modify
existing ideas in order to create better alternatives and new possibilities. Two common collaborating
techniques are brainstorming and the nominal group technique (NGT).

Brainstorming may not need a formal definition because we have likely all participated in what we
think is a brainstorming session. Brainstorming is a very common tool for generating ideas that
emphasizes the creativity of the group over the individual. The common assumption is that a group of
people get in a room and come up with new ideas on a whiteboard. Perhaps lots of sticky notes or
colored markers are used. Even when brainstorming sessions look like this, they don’t always feel
very productive, and this is because we don’t follow the rules of brainstorming. The technique was
created in the 1950s by writer and advertising executive Alex Osborne, who wrote about creativity in
his text Applied Imagination. One of the key factors of brainstorming, in Osborne’s model, was to
“hold back criticism until the creative current has had every chance to flow.” He considered the
following four ground rules for brainstorming as most important:

• Suspend all judgment

• Be open to wild suggestions

• Generate as many ideas as possible

• Put ideas together and improving on them30

Popular product design and consulting company IDEO has been known to put the rules of
brainstorming in their design studios as a reminder. Table 4.2 shows IDEO’s brainstorming rules,
many of which are based on Osborne’s original work from the 1950s.

1. Avoid judging others. The whole idea of brainstorming is to make everyone

comfortable enough to say whatever springs to mind. Remember, the more
ideas out there, the more chance there is of building on those ideas to create
the right solution.
 2. Let the creativity flow. Always encourage ideas—no matter how outlandish
they may be. Seemingly “crazy” ideas can often give rise to real solutions.
3. Be open to developing the ideas of others. However unlikely the idea may
be, using positive language (use “and” rather than “but”) when investigating
an idea can achieve real breakthroughs.
4. Stay on topic. Keep your attention on the topic being discussed; otherwise,
you risk exploring different paths that may go far beyond the scale of the
project.
5. Follow the “one at a time” rule. There is more chance of the team developing
ideas when full attention is focused on one person speaking at a time.
6. Use visuals. Visuals such as sticky notes or rough sketches are powerful
ways to get an idea across to an audience.
7. Generate as many new ideas as possible. Try for up to 100 ideas in a 60-
minute session, and then choose the ones worth developing.
Source: Adapted from IDEO. (2015). The field guide to human-centered design. Author.
http://www.designkit.org/methods/28
The nominal group technique, another collaborative ideation tool, is a more structured method for
group brainstorming. NGT works best if people prefer to work in silence, when some group members
may not be comfortable voicing their opinions and ideas aloud, when group members are unfamiliar
with one another, when a large quantity of ideas is needed, or when the topic being worked on is
controversial in some way.31 Overall, NGT increases the contribution of all participants.

Let’s use an example to walk through the steps of NGT. Step 1 is to identify the question that is being
brainstormed. For instance: How can we reduce the amount of waste being produced in fast fashion?
Step 2 is silent writing by group members. Each member (using a packet of sticky notes or equivalent)
silently records their ideas—one idea per sticky note. Silent writing should last about 7 to 10 minutes.

Step 3 involves reporting, clustering, and labeling ideas. The group’s facilitator will ask each member
to read an idea on one of their sticky notes. The facilitator then takes the sticky note and posts the
idea to the work space (wall, flip chart, whiteboard, etc.). The facilitator then asks if other members
have similar ideas on any of their sticky notes. If they do, the facilitator will take those ideas and
cluster them around the first idea. Then another group member shares an idea, and the process is
repeated until all ideas are shared and clustered with similar ideas. After clustering, the group should
identify an overall label for each cluster. Labels in this case might be “upcycling waste,” “incentivizing
use of sustainable fabrics,” “donation,” and “vintage retail.” Step 3 typically takes 20 to 30 minutes.

Step 4 helps the group members prioritize what they would like to work on in greater depth.
Prioritization can happen with a simple vote using colored sticky dots (or similar). Let’s say each
group member is given 3 dots and votes on their favorite or what they see as the most promising
cluster of ideas. The dots are tallied to determine the highest-priority cluster. For example, if the
winning label was “donation,” the group could sift through all of the ideas related to donation, start
expanding each one, or maybe combine a few to ultimately get a business idea worthy of further
exploration.

Maybe the group could come up with a successful business like FABSCRAP, a nonprofit that collects
scraps of unused textiles and fabrics from fashion companies in New York City and Philadelphia, then
recycles them or sells them from its warehouse in Brooklyn or packaged as “Scrap Packs” in its online
store. Volunteers sort through the fabric and decide how the different scraps should be repurposed.
Through its efforts to end commercial textile waste, FABSCRAP is helping the environment by
diverting textiles from landfills, thereby cutting CO2 emissions. Its sustainable approach not only
makes the fashion industry more eco-friendly but also saves fashion companies millions of dollars on
fabric waste.32

FABSCRAP volunteers sort leftover textiles.

dpa picture alliance/Alamy Stock Photo

Although not all of the strategies just discussed may suit everyone, each can help us forge new
connections, think differently, and look at the world in different ways. Begin practicing scanning,
connecting, lateral thinking, imagining, observing, and collaborating. Some strategies will be easier to
employ than others, but all can be a part of your toolkit to begin building or growing your idea-
generation skillset.

Mindshift
In Love with Your Idea?
Find some classmates and practice this quick brainstorming exercise. It’s best to have a group of 5 or
more. The more people you have, the more powerful the exercise will be. You’ll need a few materials
before you begin:

1. A sheet of paper for every group member

2. A pen or pencil for every group member
3. A paper clip that will not be used—or a picture of a paper clip, if you are working with a large
group
4. A timer

Here are your instructions; they are quite simple. You have 5 minutes to brainstorm as many uses as
you can for a paper clip. Yes, a paper clip!

Go for quantity, do not judge your ideas, and keep in mind that wild ideas are just as acceptable as
are mundane ideas. Start the timer and go.
After 5 minutes have passed, stop brainstorming uses for a paper clip and count how many ideas
each person has generated. Identify the person with the most ideas—the winner!

Ask the winner to identify their first and second idea. Then ask the other group members to raise their
hands if their list included at least one of these two ideas. Usually most of the group will raise their
hands.

The point of the exercise is that you shouldn’t fall in love with the first ideas that pop into your mind
because most people will come up with those same ideas.

Now ask the winner to share an idea from the very bottom of their list. Typically, you will find that not
many people in the room have that idea on their lists. The thoughts we generate when we keep
“digging,” prodding ourselves to think of more and more ideas, are the ones that tend to be the most
original and novel.

Paper clips.

iStock.com/Photoevent

Brainstorming takes practice, and it also takes energy, as it requires pushing beyond the easiest,
most obvious ideas. Don’t fall in love with the ideas at the top of your list. They won’t be novel.
Instead, keep going to get the most innovative ideas.

Critical Thinking Questions

1. Reflect on your own idea-generation methods. Do you tend to fall in love with your early
ideas? Why or why not?
2. Which of the six idea-generation strategies was applied in this Mindshift?
3. In what ways did the exercise challenge your previous assumptions and beliefs? Did you
learn anything that surprised you?
FOUR PATHWAYS TO OPPORTUNITY
IDENTIFICATION
Learning Objective
• 4.3 Explore four pathways to opportunity identification.

When the famous mountain climber George Leigh Mallory was asked why he climbed Mount Everest,
he answered, “Because it’s there.”33 This indicates that Mallory took the opportunity to climb Everest
simply because the mountain existed. But how do entrepreneurs know when “the mountain” is there
and when or if they should start to climb? In the case of Mallory, the idea was climbing Mount Everest,
but it really wasn’t an opportunity until he convinced himself that (1) the mountain was climbable and
(2) he could do it. In the previous section, we talked about strategies for building an idea-generation
skillset. Now it’s time to shift our attention from idea generation to opportunity identification—that is,
recognizing which ideas can turn into sustainable businesses.34

An opportunity can be a new product or service, new market, new channel of distribution, new means
of production or supply, or new way of organizing. 35 Favorable opportunities are those that are
valuable, rare, costly to imitate, and fit the capabilities of the entrepreneur.36 Valuable means there is
a market of customers; rare means the opportunity offers some novelty that doesn’t currently exist for
customers; costly to imitate creates barriers to entry to other entrepreneurs; and fit aligns with the
skills and knowledge of the entrepreneur or founding team. In this section, we focus on four different
pathways that entrepreneurs use to identify opportunities. Think of these pathways as steps on a
staircase, and as you travel up the staircase, reflect on how the opportunity identified is a bit more
complicated and the environment in which it’s identified is a bit more uncertain. The increase in
complexity and uncertainty may yield more valuable opportunities (see Figure 4.4).

Description
Figure 4.4 Increasing Complexity and Unknowingness in Opportunity Creation

Source: Neck, H. (2019). Beyond the entrepreneurial mindset. Keynote

presentation for the Kern Entrepreneurial Engineering Network Annual
Conference, January 5, 2019, Dallas, TX.

The Find Pathway

The find pathway assumes that opportunities exist independent of entrepreneurs and are waiting to
be found. Finding opportunities is the least complicated and perhaps most common way to identify
new opportunities. Generally, an opportunity is found when the entrepreneur sees a clear problem
and develops a solution. The problem is known to most, but the entrepreneur is the one who acts on
the potential solution. Some of the simplest ideas are born from making links between one event and
another. For example, keen travelers Selin Sonmez and Niko Georgantas were fed up with hauling
their baggage around with them while waiting to check in to their accommodation. Sonmez said,

Niko and I always ended up schlepping our luggage around on the first and
last days of our Airbnb stays. Similarly, we oftentimes wished to go to an
event or go shopping but decided against it to because carrying bags
around is a hassle. We hoped someone would find a solution to rid us of
the burden. For months we wished. In the beginning of 2017, we decided to
create the solution.37
To solve this problem, Sonmez and Georgantas cofounded luggage storage company Knock Knock
City, which partners with different shops to allow people to drop off their luggage for $2 an hour. Not
only do travelers have the opportunity to explore new cities baggage-free, but the shops get to earn
revenue by renting out unused space. In 2019, Knock Knock City was acquired by LuggageHero, a
luggage storage service based in Copenhagen, Denmark, that operates in 36 cities and has more
than 1,000 storage partners across Europe and North America.38

The Search Pathway

The search pathway is used when entrepreneurs are not quite sure what type of venture they want
to start, so they engage in an active search to discover new opportunities.39 We all possess certain
information sets or knowledge bases.40 By actively searching these sets, we can access a wealth of
information and uncover new opportunities. Consider your hobbies as a starting point. Having a hobby
means you are likely to have deep knowledge in that space and you probably know more than most.
Use this information to your advantage. Search for problems in your hobby space or seek ways to
leverage what you love into helping other people. For example, Carla Lyles, founder of Carla Sue
Greeting Cards & Gifts based in Houston, Texas, transformed her hobby into a business when she
discovered the joy of handcrafting cards during a period of depression. Lyles’s cards are designed to
make people smile by including messages of empowerment, self-care, and positive representation.

Professional speaker, host, and social entrepreneur Mike Smith is another example of someone who
successfully turned his passions—in Smith’s case, for skateboarding, music, and art—into a business.
Smith is the founder of nonprofit skatepark and youth outreach center The Bay as well as the founder
of Skate for Change, a youth movement that promotes positive communities and opportunities for
youth development by empowering skateboarders to give back to people experiencing homelessness.
Smith is also the cofounder of nonprofit Rabble Mill—formed through a merger of The Bay and Hear
Nebraska—which helps Nebraska youth statewide achieve belonging, purpose, and the upward
mobility necessary to grow, achieve, and reinvest in their community. 41
The Bay combines several of founder Mike Smith’s passions.

Courtesy of The Bay

The Effectuate Pathway

Effectuating opportunities involves using what you have (skills, knowledge, abilities) to uncover an
opportunity that uniquely fits you. The opportunity builds on your experience, abilities, networks, and
confidence to act under conditions of uncertainty. Unlike finding and searching, the effectuate
pathway is more about creating opportunities than about simply uncovering them. To identify
opportunities, this approach advocates using what you know, whom you know, and who you are. Your
role as an entrepreneur is to take action and see how the market responds, recognize patterns, and
learn from iteration to define the opportunity as it evolves. FlowDog, a canine aquatic and physical
therapy facility for dogs, is a clear example of effectuation. Chris Cranston had deep knowledge of
physical therapy given her 13 years of practicing as a sports medicine physical therapist. She also
had a deep love for animals. Tired of dealing with the human side of medicine, she enrolled in a
canine physical therapy course at the University of Tennessee. Armed with her extensive knowledge
in sports medicine and her newfound knowledge in canine physical therapy, she began testing the
market in the Boston area. She started a mobile practice to treat dogs in their homes, then she started
a physical therapy clinic for an animal hospital outside of Boston, and she eventually bought a dog
swimming facility and converted it to a therapeutic and physical therapy clinic for dogs. Each iteration
of her business helped her create more experience, build deeper networks, and take confident action.
After 10 years of operating the clinic, she sold it to a large animal hospital in New England. Today she
helps others develop their own canine physical therapy practices and has her own podcast called
PetAbility.

The Design Pathway

The final pathway, the design pathway, is one of the most complex, yet it can be the most value-
creating approach. It can uncover high-value opportunities because the entrepreneur is focusing on
customers’ unmet needs—specifically, latent needs (needs we have but don’t know we have). Design
is at the top of the staircase in Figure 4.4 and is considered the most complicated pathway because of
the practice and imagination it takes to uncover true unmet needs. As a matter of fact, we devote an
entire chapter (Chapter 5) to this pathway! Design is another way to create opportunities because by
identifying unmet needs, the entrepreneur is creating a new market. The most iconic example of using
the design pathway to create a new market is the iPhone. The introduction of the iPhone (even
though the BlackBerry existed) created a new global market of communication and connection. When
we look back, we can ask ourselves, did we need an iPhone? If the answer is “Well, I can’t imagine
living without one today,” then you now understand what a latent need is!

Current research suggests that opportunities are either discovered or created. The discovery
approach assumes that opportunities exist and we rely on entrepreneurs to discover them. Creating,
on the other hand, assumes that the entrepreneur creates the opportunity rather than simply
uncovering it. The find and search pathways are considered discovery approaches, and the effectuate
and design pathways are considered creation approaches.42

THE IDEATE METHOD FOR CREATING NEW

OPPORTUNITIES
Learning Objective
• 4.4 Practice the IDEATE Method to generate high-potential ideas.

As we have explored, for an opportunity to be viable, the idea must be new, unique, or at least a
variation on an existing theme that you are confident people will accept and adopt. It must involve
something that people need, desire, find useful, or find valuable, and it must have the capacity to
generate profit. We cannot credit divine intervention as the source of new ideas, nor is every idea an
opportunity. The best ideas are based on knowledge and the ability to transform the idea into a viable
opportunity.

Research has supported that those who have the ability to develop new business opportunities have
significant experience in a particular industry, a diverse and large network, and domain expertise,
which refers to expert knowledge in a particular field—such as AI, data analytics, textiles, alternative
energy, or health care.43 Yet students often don’t have this wealth of experience and knowledge. So
how do you develop new business ideas? The answer is to practice coming up with new ideas. And
the journey starts with lots of ideas, as we have previously mentioned. Remember the Mindshift
exercise that had you come up with uses for a paper clip? Don’t go with your early and obvious ideas
because most people have those same ideas. It takes a lot more work to get to truly innovative,
business-worthy ideas and to understand how opportunities are identified and turned into a business.
Now it’s time to introduce to you a method of idea generation that can help you generate lots of
ideas—actually 100 ideas—in hopes of finding an actionable, entrepreneurial opportunity. This
method is called IDEATE.44 What’s great about the IDEATE Method is that it offers several techniques
to generate ideas, utilizes all of the pathways discussed in the previous section, and helps you weed
out the ideas that are not likely to evolve into business opportunities.

IDEATE is an acronym that stands for Identify, Discover, Enhance, Anticipate, Target, and Evaluate
(see Table 4.3).45 First, you develop 10 ideas using techniques related to the Identify, Discover,
Enhance, Anticipate, and Target phases of the method, for a total of 50 ideas. Next, you evaluate the
ideas to narrow them down to the top 10. Then, you repeat the method again for another 50 ideas,
followed by another quick evaluation to get the top 10. From 100 total ideas, you get 20 top ideas.
With your 20 top ideas in hand, you then conduct a deeper analysis to come up with your top 1 to 3
ideas. From there, you can start taking action to determine which of the 3 could truly be high-potential
business opportunities. Let’s walk through an abbreviated version of the IDEATE Method.

Identify Identify problems that customers are currently trying to solve—and

are spending money to solve—but are still not solved to the
 customers’ satisfaction. Also identify the underlying causes of the
problem.
Discover Actively search for ideas that leverage your passions, experiences,
and areas of curiosity.
Enhance Add innovation and novelty to enhance existing products, services,
processes, or business models.
Anticipate Anticipate change and trends and how they will impact existing and
future markets.
Target Explore an addressable target market and identify its unmet needs.
Evaluate Practice scoring and selecting higher-quality ideas while also
avoiding confirmation bias and excessive optimism.
Source: Adapted from Cohen, D., Pool, G. Neck, H. (2021). The IDEATE Method: Identifying high
potential entrepreneurial ideas. Sage.

Identify
The Identify phase of the IDEATE Method is all about finding migraine headache problems (MHPs).
MHPs are significant problems that need to be solved and for which there are large numbers of
people willing to pay for the solution. MHPs create significant pain points for customers that cannot be
resolved easily. MHPs can be contrasted with minor inconveniences, such as no late-night food
options on campus. Sure, late-night food options might be nice to have, but are they really needed? Is
a college campus big enough and are there enough students really willing to pay for a late-night food
service? Probably not. But expand the market to people in a larger geographic area, likely urban,
wanting late-night food, and you might have a business similar to Domino’s!

The Identify phase is also about looking at how existing MHPs are currently being solved, yet the
solution may be inferior. A lot of new businesses have been created because what currently exists is
not good enough and customers are willing to pay for something better. It’s hard to bring something
truly unique to the entire world. Imitation can be the greatest form of flattery! Uber and Lyft, for
instance, are classic examples that arose out of traditional taxis’ failure to meet customer
expectations.

It’s common when looking for an MHP to focus on symptoms of a problem rather than the root cause.
Think about Uber and Lyft. The problem being solved at first glance is convenience. But why are taxis
inconvenient? They aren’t around when you need them. You have to flag them down on the street.
When you call to order a cab, perhaps the person on the other end of the phone is quite rude. When
you keep asking “Why?” the real problems start to emerge, and you can develop a solution that really
meets the needs of paying customers.

Overall, the Identify phase involves working to identify MHPs and creating solutions that people are
willing to pay for. See the second Mindshift to start working on this phase now.

Mindshift
Practicing “Identify” in the IDEATE Method
Let’s start practicing the IDEATE Method. Important to the methodology is the first phase, where the
goal is to “Identify” MHPs. They are called MHPs because when one has a headache, one usually
buys aspirin because they really need it. Consumers don’t buy products or services; they buy
solutions. In the case of a headache, the solution is an aspirin, so they buy aspirin. But other solutions
could exist as well. What’s important is your ability to identify MHPs before thinking about solutions. In
this Mindshift, you are to identify five MHPs and then create five solutions per problem. We give you
an example to help you get started.
Example MHP: It’s not easy to quickly exchange contact information, and younger people don’t carry
business cards.

Possible solutions:

1. Phone bump attachment so when you bump phones the information is transferred
automatically
2. QR code that can quickly be scanned
3. I look at my friend’s phone and it recognizes me using iris recognition technology
4. Something connected to LinkedIn that recognizes all the people in your immediate vicinity and
sends them requests to connect

At this point, we are not evaluating the preceding ideas. We are just helping you practice finding
MHPs.

Critical Thinking Questions

1. How difficult was it to identify MHPs?
2. How will you analyze whether some of your solutions have customers who are willing to buy
them?
3. Do a quick Google search for your solutions. How many already exist? What does that tell
you?

Discover
You can search for and discover problems based on your view of and experience in the world—even
if that experience is limited. The Discover phase of IDEATE is all about searching problem-rich
environments we are already familiar with. In the Discover phase, you should look for MHPs based on
your own experiences (school, work, church, extra-curricular activities). Also consider challenges in
your everyday life. For example, maybe you brush your teeth everyday with an electric toothbrush, but
it’s a pain to take that electric toothbrush with you when you travel. Think about how many people use
electric toothbrushes. There are over 130 million.46 How many of them travel? You don’t know, but it
might be a lot. At least toothbrush startup Quip thought so. In 2023, it was named the best travel
electric toothbrush.47

In addition to looking for problems in your own everyday life, look for problems in areas where you
have passions, curiosities, or sources of enjoyment. Spend time learning about one of your favorite
activities. If you love yoga, you might spend time learning about yoga studios and the types of
challenges encountered by owners. Or you may read a book on the origins of yoga. Or you may take
a class at a different yoga studio every day for a week to compare experiences. All of these actions
help build your knowledge related to an activity you enjoy. Because you are learning with the intention
to search and discover problems, you will start to see your favorite activity in a different light as a
problem-rich environment that could be a source of new business ideas.

The Discover phase also encourages you think about opportunities you have noticed elsewhere that
may work in your own context. For example, it was Howard Schultz who traveled to Italy in 1983 and
became enamored with the Italian coffeehouse. He brought an idea that was a tradition in Italy to the
U.S. context, and Starbucks was born.48

Spend some time thinking about your everyday life, your experiences, passions, and opportunities
noticed elsewhere. What new ideas can you discover?

Enhance
The Enhance phase of the IDEATE Method is all about adding innovation and novelty to existing
products and services or simply making an inferior product or service better—as long as customers
are willing to pay for it, of course. Consider streaming television versus cable. When streaming
services such as Netflix, Hulu, and YouTube emerged, what problem with standard cable providers
did they solve? Cable providers such as Xfinity, Verizon, and Cox are expensive, lack choice, have
too many channels that subscribers don’t watch, and the list could go on. The streaming companies
are not necessarily providing anything brand new to the world; they are just solving a lot of problems
that customers have with the traditional cable giants.

A great tool to help enhance existing products and services is the SCAMPER technique, which stands
for Substitute, Combine, Adapt, Modify/Magnify, Put to Other Uses, Eliminate (or Reduce), and
Reverse (or Rearrange). The purpose of the technique is to apply a set of questions to manipulate
existing products or services into new things, as illustrated in Table 4.4.49 To try out the technique, find
a product or service you really like (or maybe don’t like) and play around with it using the SCAMPER
technique. See what new ideas come out of this process.

Technique Questions to Ask Example

S Substitute What can I substitute or Substituting glass with
change in my product, plastic (for safety) in
problem, process? What can making a life-size
be replaced? children’s playhouse
C Combine How can I combine 2 or Adding cameras, then
more parts of my product, computer applications to
problem, process to achieve cell phones, resulting in
a different product, the smartphone
problem, or process?
A Adapt What can I adapt in my Adding touch screens to
product, problem, process? computers
What can be added?
M Modify/Magnify What can I modify or put Enlarging handles on
more or less emphasis on in children’s toothbrushes
my product, problem, or to improve grip
process?
P Put to Other Uses What are new ways to use Using coffee filters as an
the product, service, or extra layer in masks
process? during the COVID-19
pandemic
E Eliminate/Reduce What can I modify or put Removing combustible
more or less emphasis on in engines from cars and
my product, problem, or replacing them with
process? What can be batteries to create an
removed or simplified? electric car
R Reverse/Rearrange How can I change, reorder, Rearranging operations
or reverse the product or in grocery stores by
problem? What can be introducing self-checkout
swapped or flipped?
Source: Adapted from Cox, A. (2020, April 29). Use this ideation brainstorming technique. Netmind.
https://netmind.net/en/scamper-technique-reduce-reuse-recycle-or-reinvent
Anticipate
The Anticipate phase is the most forward-looking phase of the IDEATE Method. It forces you to look
at an unknown future, anticipate changes, and then create new ideas based on the problems (and
opportunities) that those changes create. Table 4.5 lists some big, futuristic questions we can think
about.

What is the future?

What is leading us there?
How will we live in 2100?
What will we look like?
How will we work?
What will we eat?
How do we communicate?
A less intimidating approach is to look at the four sources of change: (1) social or demographic, (2)
technological, (3) political or regulatory, and (4) market or industry. Social and demographic change
relates to changes in both the characteristics and behaviors of people. For example, the population in
the United States is aging at a rapid rate. The number of Americans over the age of 65 years old will
double over the next 40 years. Think about the impact of this change. People are living longer, so
additional services will be needed for the increasing proportion of older people. In addition, people will
collect Social Security benefits longer, which will strain the federal budget.50

A technological change is an increase in possible outputs given a certain level of inputs created
through invention and innovation.51 Think about emerging technologies related to robots, artificial
intelligence, virtual reality, and cryptocurrency, just to name a few. What will the future of work be if
robots are smart enough not only to replace humans on production lines, as they do now, but also to
replace humans doing higher-level cognitive work? What will a hospital look like if surgeons are doing
surgeries by way of virtual reality from home? What if the surgeons are simply high-performing AI
robots?

Political or regulatory change relates to changes in governmental laws and regulations. Changing
presidential administrations may lead to legislative changes that impact businesses. Regulatory
changes such as those impacting the adoption of electric vehicles or reducing carbon emissions can
all be sources of opportunity. For example, some governments believe that Meta, the parent company
of Facebook, has too much power in the social media space; some regard it as a monopoly, which is
a violation of U.S. antitrust laws. The U.S. government has the power to break up the company into
smaller companies to create a more competitive marketplace that allows other companies to
compete. For instance, in 1984, the U.S. government broke up the powerful AT&T—the only phone
company in the United States at the time—because it stifled competition. Breaking up AT&T created
space for other companies to compete, thereby boosting the U.S. economy. Only time will tell whether
the government will take similar action against powerful big tech companies.52

The fourth source of change is market or industry change that occurs due to economic shifts (up or
down), changes in consumer behavior, market trends, and technology. As a matter of fact, the
previous three types of change will automatically cause changes in markets and industries. For
example, many people are “cutting the cord” with cable companies and opting to go with streaming
services. People’s intense focus on climate change is altering product consumption patterns. The
introduction of AI platform ChatGPT may disrupt the higher education industry.

Though often viewed in the negative, every source of change opens up new possibilities. Think about
all four sources of change. What is happening right now in each of these realms? What MHPs are
likely to emerge? What solutions can you create?
Target
The Target phase of IDEATE encourages you to find a large customer group, identify their needs,
pain points, or MHPs, and then create a solution. The Target phase emphasizes product-market fit,
which means you have products that meet the needs of an existing market. This is in contrast to the
“If you build it, they will come” approach, in which you create something new and hope there is a
market somewhere for whatever you create. This aspect of the IDEATE Method is so important in
entrepreneurship that we have devoted an entire chapter to design thinking, which fundamentally
starts with targeting a user group and designing for it. So we will have a lot of practice with the Target
phase in the next chapter. For now, think about a large group of customers and what you can create
for them. For example, did you know that about 40% of high school graduates don’t go to college, and
33% of high school graduates that do go to college never finish their degrees?53 How will this group
get the skillset they need for the future of work? What ideas do you have to make education more
accessible and relevant to this group?

Evaluate
The Evaluate phase in the IDEATE Method is all about winnowing down your many ideas to the most
likely ideas that could be converted into a viable new business. Though evaluation of ideas is covered
extensively throughout this text, the Evaluate phase as discussed here is more about getting rid of the
not-so-good ideas so we can start working on those ideas that may have more potential.

If you were practicing the IDEATE Method as it was intentionally designed, you would have 50 to 100
ideas at this stage. But you wouldn’t have vetted any of these ideas because you were in ideation
mode, focusing on creating solutions to MHPs that people are willing to pay for. Now it’s time to shift
to analysis mode. Evaluate is a 3-step process, as depicted in Figure 4.5.

Figure 4.5 Evaluation Process

Step 1 involves scoring all the ideas you’ve developed so far using the Gut Check formula so you can
create a ranking to uncover your top 10 ideas. The Gut Check formula is

𝐼𝑑𝑒𝑎 𝑆𝑐𝑜𝑟𝑒 = 𝑀𝐻𝑃 𝑥 𝐸𝑛𝑡ℎ𝑢𝑠𝑖𝑎𝑠𝑚 + 𝐺𝑢𝑡

Each variable in the equation is scored 1 to 5, with 5 being the highest. The MHP score is based on
the degree to which the idea solves a big problem for a lot of people who are willing to pay for your
solution. Enthusiasm relates to your excitement, passion, and belief in the idea. Finally, Gut is your
feeling that the market size is large enough, customers in the market are reachable, and you can
defend your position and compete in the industry. The word “Gut” is used on purpose here; you are
not expected to have all the data at this point.

Let’s use this formula on an idea for a mobile tattoo removal service. A van with laser technology will
come to a client’s home or place of work for tattoo removal sessions, because it takes 5 to 10
sessions for a tattoo to disappear. The problem you identified is that a large number of people regret
getting tattoos, but for many reasons, they don’t have time to go to a removal facility. You might score
the MHP at 3, Enthusiasm at 5 (you think it’s a great idea), and Gut at 2 because you are worried
about the scalability of the mobile aspect of the operation. Plug your numbers into the formula and
you have (3 x 5) + 2 = 17. The number 17 doesn’t mean much until you compare it to the score of
each of your other ideas. At this point in the process, you score all of your ideas and rank them from
highest to lowest. Take your Top 10 ideas into Step 2.
Step 2 is simply a Google search. Yes, it’s simple, but most people don’t do this step. Many people
are scared to find out that their most amazing idea that they are in love with already exists. It is very
likely that your idea does already exist, but this is a good sign because it means there is a market for
it. Perhaps you can make your own idea better to make the existing products or services on the
market seem inferior. Remember the Enhance stage? The Google search may also force you to
eliminate some ideas, and this is OK, too. This is the point of the search!

Step 3 requires taking your remaining ideas and doing a Value Marker Analysis. Similar to the Gut
Check, you are scoring ideas, but this time you are looking at the essential markers that startup
entrepreneurs assess. To determine a score for each marker, you are likely going to need to do a bit
more research. There are 8 value markers to be scored for each remaining idea:

1. Size of market is substantial enough to support a business

2. Path to revenue is possible
3. Clear value proposition (customers need it)
4. Reachable target market (customers are willing to pay for it)
5. Idea has uniqueness and differentiation
6. Idea is not easily imitated or replicated
7. Ability for you to leverage your existing knowledge, resources, and network to take action on
the idea
8. Your enthusiasm for the idea

Some of these value markers will be discussed later in the text. For now, do your best to score each
on a scale of 1 to 5, with 1 meaning low/small/not at all/no and 5 meaning high/big/a lot/yes. The
highest score attainable for an idea is 40. Can you get to your top 3 ideas using this analysis? Are the
top three what you expected?

Using IDEATE to Shape One Idea

Just as the IDEATE Method can be used to generate lots of different ideas, it can also be used to
shape one idea into various opportunities. Let’s use the method this way to come up with
opportunities related to the modern-day gourmet food truck.

The mobile food business is not a new concept, but traditionally, street food has been associated with
fast food—such as burgers, hot dogs, and ice cream. These are the menu items often sold from food
trucks, kiosks, and carts. Yet in the past decade, the nature of the mobile food business has changed
as the street food industry has become increasingly upscale. Using the Identify stage, we could
observe that food trucks are popular, but customers want more healthy options. A possible concept
could be a food truck that serves fresh seasonal salads and healthy grain bowls with a menu that
changes with the seasons.

Building on this food truck concept in the Discover stage, as you actively search for ideas that
leverage your passions, experiences, and areas of curiosity, the opportunity could morph into an
entirely different concept. For example, given that waste management is a significant issue in the
world and islands of plastic are forming in our oceans, our salad and grain bowl food truck could
promote itself not only as healthy for people but also healthy for the planet.54 All plates, cups, and
utensils would be compostable—even the straws! Note how the idea of the food truck has become a
bit more innovative and meets the needs of customers, too.

As you enter the Enhance stage, you could morph the food truck opportunity again. Enhancing the
idea requires you to expand concepts to new applications or add innovative twists. Maybe the food
truck turns into “fresh food” vending machines, like the ones produced by Chicago-based company
Farmer’s Fridge, that are placed in strategic urban locations like airports where more and more
people want access to affordable healthy food to bring on their flights. Notice now that with the twists,
our market just got bigger! We gain more customers by solving more headaches.
Food truck.

PriceM/Shutterstock

Applying the original food truck concept to the Anticipate stage could result in an entirely new
concept. Here, we think about future scenarios. Food deserts are becoming a serious problem. A food
desert is an area that lacks access to affordable healthy food—such as fruit, vegetables, grains, and
other non-processed foods. Most of these food deserts are in rural areas, communities of color, and
low-income neighborhoods with very little access to supermarkets and fresh produce—places where
there are more convenience stores than grocery stores.55 Ultimately the health of the people in these
communities is at risk. How can we morph the food truck concept and anticipate the future? Now we
can perhaps think about creating a fleet of food trucks that act as mini produce markets. These trucks
would travel through food deserts selling healthy food at reasonable prices while also helping
customers learn more about eating healthy on tight budgets.

In the Target stage, you could take the food-truck-in-food-deserts concept and choose a low-income
urban area in which to test the idea before investing in trucks. Or you could take the original food
truck concept of seasonal salads and grain bowls and test it in downtown Denver, Colorado—one of
the healthiest cities in the United States. The idea here is to find that niche market of early adopters
who will help validate your idea.

Finally, the Evaluate stage encourages you to take all of the ideas and begin to “size” the problem:

1. Food truck with salads and bowls

2. Food truck (same as #1) that only uses compostable packaging and utensils
3. Fresh food vending machine
4. Fleet of trucks that offer “mini” produce markets in food deserts

For each concept, what is the size of the market? Is the customer reachable? Do you have the ability
to reach the customer? Do you even want to work on any of these opportunities? Do you have the
skills and ability to execute them? Do you know people who can help you? These are all questions we
will help you answer throughout this text.
First and Third Person Opportunities
The IDEATE Method also lends itself to the development of both first-person and third-person
opportunities.56 First-person opportunities are opportunities defined by our own personal lens through
which we view the world (that is, possible opportunities for me) and are limited to our immediate
environment and daily life. As they are drawn from a pool of existing knowledge and beliefs and
generally involve areas of familiarity (for example, retail or the food industry), first-person
opportunities are considered to be easier to implement and carry less risk, but they are likely to be
less innovative.

Third person opportunities are opportunities that focus on a much broader spectrum of significant
problems or MHPs to solve for consumers (that is, possible opportunities for someone else). Unlike
first-person opportunities, third-person opportunities involve less familiar territory and carry more risk
and uncertainty, yet the opportunities may be more innovative and have higher potential.

Through the six-step IDEATE process, it is possible to convert a third-person opportunity to a first-
person opportunity, particularly during the Target and Evaluate steps, which allows entrepreneurs to
build the knowledge required to choose and evaluate the opportunities worth investigating. For
example, Kristen McClellan identified a pretty big problem: People need sunscreen, and most don’t
put it on correctly, don’t reapply it in a timely fashion, or simply don’t apply sunscreen at all. She
thought about her own spray-tanning experience (first-person issue) and wondered if the concept
behind spray tanning could be used to apply sunscreen (a third-person idea, because she knew
nothing about the technology and had no engineering background). She further thought this would be
ideal technology to have at beach resorts, not only for adults but also for small children, who often
hate applying sunscreen. Seeing the size of the problem and the market potential, she eventually
developed the SnappyScreen machine, the world’s first touchless sunscreen application. You step
into a shower-like structure, and the SnappyScreen applies just the right amount of sunscreen in 10
seconds.57

Learning the skills and information necessary to pursue certain opportunities minimizes the fear of risk
and uncertainty, thereby motivating entrepreneurs to convert a third-person opportunity that solves a
significant problem (or MHP) into a pioneering first-person high-potential opportunity.58

Research at Work
Testing IDEATE in the Entrepreneurship Classroom
Researchers Cohen, Shinnar, and Hsu set out to study the impact of the IDEATE Method (discussed
in Section 4.4) versus more traditional methods of opportunity identification. To compare the quality of
ideas generated by each method, they studied U.S. undergraduate students enrolled in six sections of
an Introduction to Entrepreneurship course. Out of the six sections of the course, three sections were
taught the IDEATE Method, while the other three sections (the control group) learned a more
traditional opportunity recognition method based on a passive search that relies on one’s ability to be
alert in their known environment. The IDEATE Method, in contrast, uses a systematic search
approach that helps students identify ideas beyond their current knowledge and capabilities. Using
the IDEATE Method, the students were required to generate 100 high-quality ideas.

Because the IDEATE Method is rooted in deliberate practice and active searching, the researchers
hypothesized that this approach was more likely to sharpen students’ skills in opportunity identification
and produce more innovative ideas. When the experiment was complete, the researchers found a
“significant correlation between the IDEATE teaching method and the innovativeness of the
opportunities participants identified”; they also discovered that “the students taught in sections using
the IDEATE approach identified opportunities that were more innovative than the opportunities
identified by students in the control sections.” Overall, the researchers concluded that the IDEATE
approach proved to be more effective in opportunity identification than any other of the methods
tested and strengthened the students’ skillset.

Critical Thinking Questions

 1. What are the benefits of the IDEATE Method versus the traditional methods of opportunity
identification?
2. How can separating ideas into different categories, such as those required in the IDEATE
method, help with idea generation?
3. Do you believe you can generate 100 ideas using the IDEATE Method?

Source
Cohen, D., Hsu, D. K., & Shinnar, R. S. (2021). Identifying innovative opportunities in
the entrepreneurship classroom: A new approach and empirical test. Small Business
Economics, 57(4), 1931–1955.

CHALLENGES MOVING FROM IDEA TO

OPPORTUNITY
Learning Objective
• 4.5 Recognize challenges different people face moving from idea to opportunity.

Much of this book is about working to turn an idea into an actual business opportunity. We have
already briefly discussed and will continue to discuss the need to have enough customers who are
willing to buy what you are offering in order for the business to get off the ground and thrive. Yet even
when there is a market ready and waiting for an entrepreneur’s products or services, nascent
entrepreneurs of all kinds still face a lot of challenges. Many of these challenges relate to who you
are, who you know, where you live, and what you have. The entrepreneurship journey is variable for
different groups, and some entrepreneurs are in a better starting position than others. For example,
Mixtroz founders Kerry Schrader and Ashlee Simmons introduced in the Entrepreneurship in Action
feature faced more hurdles than most. While starting and growing Mixtroz, they went three years
without salaries (after leaving high-paying corporate jobs) and endured a barrage of sexism, racism,
and ageism.59

Social factors mean that entrepreneurial drive does not always translate into entrepreneurial success.
For instance, consider that nearly one-fourth of Black people (23%) have entrepreneurial intentions,
twice the percentage of white people, and Black entrepreneurs have a comparatively low fear of
failure: 32% among those seeing opportunities, versus 45% and 43% for white and Hispanic people,
respectively.60 And according to a McKinsey report, Black Americans start more businesses than any
other ethnic groups. Yet only 1% of venture capital funding is invested in Black-owned ventures.61 In
general, those that execute on opportunities are more likely to have access to important networks (for
connections to others), access to information (relevant knowledge), and access to capital (cash).
Entrepreneurs of color (not just Black entrepreneurs) are 30% more likely than white entrepreneurs to
face these roadblocks.62 Without these, a startup entrepreneurship is dealt a more difficult hand of
cards. Figures 4.6 and 4.7 show some recent U.S. entrepreneurship statistics in the areas of race,
gender, and ethnicity. Why do you think that fewer women than men believe they have the capability
to start a business? And why do you think Black people have higher rates of entrepreneurial intention
but lower rates of funding? What might explain the variation in ethnic groups’ motivations for starting a
business?
Description
Figure 4.6 The Gender Gap in Entrepreneurial Self-Efficacy and Execution

Source: Data from Kelley, D. J., Shay, J., Majbouri, M., Brush, C. G., Corbett, A.
C., & Daniels, C. (2022). Global entrepreneurship monitor 2021/2022 United
States report. Babson College.

Description
Figure 4.7 Entrepreneurial Motivations by Race and Ethnicity

Source: Data from Kelley, D. J., Shay, J., Majbouri, M., Brush, C. G., Corbett, A.
C., & Daniels, C. (2022). Global Entrepreneurship Monitor 2021/2022 United
States report. Babson College.

Professor of entrepreneurship Horatio Morgan at the University of Waterloo in Canada studies

underdog entrepreneurs and has written a book by the same name. For Morgan, underdogs are often
immigrant, minority, or marginalized entrepreneurs, but he also acknowledges that anyone desiring to
be an entrepreneur can feel like an underdog if “their personal attributes seem to work against
them.”63

As he states in his book:

In many cases, race and socioeconomic status combine to compound the

obstacles faced by enterprising women and men alike. In particular, people
can find it extremely difficult to mobilize resources to develop and grow a
business when they come from low-income families, or have a low social
status. They can emerge from different situations, places and times. In
addition to the factors we have already considered, some entrepreneurs
are disadvantaged because of their national identity, disabilities, sexual
orientation, age, religion, or political affiliation. In some cases, their
situations are so destitute that their underdog status is undeniable. In other
cases, we have self-described underdog entrepreneurs who perceive their
disadvantages to be many, and their opportunities to be few. Sometimes a
single change—like moving to a new country, losing a job, or experiencing
a business failure—in an otherwise comfortable life is all it takes to land
someone into underdog territory.64 (pp 8–9)
Entrepreneurship is often considered a democratizing force in the world, supporting the idea that
entrepreneurship gives one the ability to freely create the life they want. It’s also about access to
starting a business. It’s true that it’s easier to start a business than ever before given technological
advances and the emergence of the creator economy—that is, businesses that operate via social
media and digital platforms.65 Yet the ability to sustain a business over the long haul is still very
challenging.

Think about the barriers faced by people with criminal backgrounds, who often have difficulty securing
a job after their incarceration. For example, Claudia Shivers served 11 months in federal prison for
conspiracy to commit tax fraud. According to an interview with CNBC, Shivers said of being out of
prison, “I spent a lot of time internalizing, just having self-doubt, thinking that I was never going to be
any more than the last mistake I made.”66 Not quite sure what else to do because finding a job with a
living wage was difficult, she started roasting coffee beans in her home and selling them to friends
and local vendors. Her business is called Queen Coffee Bean, and Shivers’ goal is to work with coffee
farms to build a more equitable coffee community. Shivers also serves on the board of the
organization Inmates to Entrepreneurs that facilitates entrepreneurship opportunities for others just
like herself.

Whether prospective entrepreneurs from marginalized communities face barriers related to race,
gender, sexuality, criminal justice history, immigration status, social class, or geography,
entrepreneurship can be difficult because of poor resources, weak networks, lack of education, and
discrimination. Keep in mind that opportunities that turn into successful businesses are the ones we
read and hear about because they are successful. The failures are far less talked about, and there
are many. Yet you can’t fail if you don’t try, and if you don’t try, then how will you know if you can
succeed?
Maybe it’s best to end this chapter with words from Mixtroz’s Ashlee Simmons:

Entrepreneurship arguably is one of the hardest things you could ever do in

life. And if you are successful at it, that’s one road. If you’re not successful
at it, that’s another road, but I think that road is okay too. Because being an
entrepreneur, having that chapter in your life will make you better in any
other thing you decide to do over the course of the rest of your life.

SUMMARY
• 4.1 Explain how the entrepreneurial mindset relates to opportunity recognition.

Having the right entrepreneurial mindset is essential to identifying opportunities and taking
action to start new ventures. It gives entrepreneurs the confidence to find unmet needs in the
marketplace and the ability to persist with ideas and build on opportunities. Before any
opportunity can be realized, there is an idea. The difference between an idea and a business
opportunity is related to three central characteristics: novelty or newness, desirability, and
value.

• 4.2 Employ strategies for generating new ideas from which opportunities are born.

Of the nearly countless ways of generating ideas, there are six key strategies that can help
identify thousands of ideas and grow an idea-generation skillset: scanning, connecting, lateral
thinking, imagining, observing, and collaborating. See Figure 4.8 for the solution to the Nine-
Dot Exercise posed in this section. Were you able to solve it?

• 4.3 Explore four pathways to opportunity identification.

Favorable opportunities are those considered to be valuable, rare, costly to imitate, and fit the
capabilities of the entrepreneur. The four pathways (design, effectuate, search, and find) are
useful for explaining how entrepreneurs identify and exploit opportunities.

• 4.4 Practice the IDEATE Method to generate high-potential ideas.

IDEATE (Identify, Discover, Enhance, Anticipate, Target, and Evaluate) is an empirically

proven method for identifying and selecting high-potential ideas that can be converted to new
opportunities. The IDEATE Method allows for the inclusion of both first-person and third-
person ideas. First-person opportunities are opportunities defined by our own personal lens
through which we view the world; and third-person opportunities are opportunities that focus
on a much broader spectrum of significant problems or MHPs to solve for consumers.

• 4.5 Recognize challenges different people face moving from idea to opportunity.

The entrepreneurship journey is variable for different groups. Some entrepreneurs are in a
better starting position than others. Race, socioeconomic status, national identity, disabilities,
sexual orientation, age, religion, or political affiliation can be obstacles for aspiring
entrepreneurs.
Description
Figure 4.8 Solution to the Nine-Dot Exercise

Key Terms
• Alertness

• Bisociation

• Design pathway

• Effectuate pathway

• Find pathway

• Idea

• Imagination-based strategies

• Lateral thinking

• Migraine headache problems (MHPs)

• Prior knowledge

• Search pathway

Case Study
Madison Reed, Amy Errett
Amy Errett went out on a routine errand one day to buy hair color for her wife, Clare. Walking down
the hair color aisle in a supermarket, it’s easy to be overwhelmed with choices, and Errett came home
with 60 boxes, all of which looked pretty much the same. As Amy and Clare opened the boxes, they
found baffling instructions, flimsy gloves (the dyes also readily stain human skin), and harsh
chemicals. Looking at the boxes and contents spread out before them, Errett couldn’t help but think,
“How ironic that in the course of wanting to make yourself beautiful you’re going to be tortured during
the process.” There had to be a better way. That trip to the store was the genesis of Madison Reed, a
company that seeks to disrupt the hair color industry through a unique fusion of beauty and
technology.

Errett examined the boxes through the lens of her extensive business and leadership experience at a
number of financial services companies, including Bankers Trust, Spectrem Group, and E-Trade, in
addition to Olivia Travel, a vacation-planning company targeted toward LGBTQ+ women, and
Maveron, a VC firm focused on consumer brands. Errett’s prior roles had given her a keen sense of
how VCs evaluate opportunities and figure out what is important to them, such as the potential of
“owning” a product category, of scaling the business, and of producing an outsized return.

Having dissected the pile of hair color boxes gathered during her ill-fated shopping trip, Errett began
to investigate the hair color industry. The women’s hair care market is large and growing. It
encompasses a wide range of products, including shampoos, conditioners, styling products, color
products, and growth treatments. Consumers have a diverse range of needs and preferences when it
comes to hair care, creating opportunities for a variety of brands and product offerings. The global
hair care market size was valued at $87.7 billion in 2020 and is expected to reach $112 billion by
2028. The U.S. hair care market alone was valued at $12.6 billion in 2020. Some 95 million U.S.
women color their hair every six weeks and, on average, spend $330 annually on color using one of
two options: (1) purchasing a product at a retailer for home use or (2) going to a salon for treatment
by a trained and licensed cosmetologist. Many users also opt for touch-ups or full dye jobs every two
to six weeks, ensuring plenty of return visits for hair salons.

The hair color industry also has an emotional component. The category has a “high friction point” in
that customers are cautious about changing the appearance-altering products they use. Once hair
color is applied, there is no straightforward way to undo it. And hair—its length, color, texture, and
styling—matters in everyone’s lives, particularly for women; it projects our identity and can affect how
others respond to us. Therefore, hair color consumption is based on need rather than merely a simple
desire for products and services. Errett believed this made the industry recession proof.

As Errett continued to explore the industry, she began to ask questions to the people around her, “Do
you dye your hair?” and “Do you know what’s in your hair color?” Typically, her friends—the ones who
dyed their hair—had no idea what was in their hair color products and often didn’t know what brand
they actually used, particularly if they went to a salon. Errett observed 53 friends and acquaintances
apply their own hair dye and observed “all the mistakes and all the emotion” involved in the process.
An errant dye job can lead to embarrassment and frustration and affect a woman’s confidence.

Given the scope and importance of the hair care market, Errett found that off-the-shelf hair color
products were not meeting the needs of their users—about 52% of all those who color their hair. The
boxed retail products offered a limited range of shades, harmful ingredients such as ammonia, and
poor-quality kit components (such as mixing trays and gloves). Applying the product involved handling
the color solution directly and using towels and gloves to protect clothes, skin, and home surfaces—
such as sinks and countertops. Errett’s preliminary market research suggested that women were
increasingly concerned about the chemicals used in the color and were seeking natural, high-quality
products that were also easy to use and affordable.

In this fragmented, competitive industry, Errett discovered that between the $10 box experience and
the $150-and-up salon experience lay a third option: salon-quality hair color delivered to your home
with access to advice from professional hair colorists. She set out to disrupt the at-home color
category by creating a product that aspires to be salon-quality and is marketed directly to consumers.
The company, officially launched in July 2014, is named after her daughter, Madison Reed.

Madison Reed has become an innovator, not just in terms of price point and product quality, but also
in terms of technology, particularly as it relates to color selection. When choosing a hair color to apply
at home, there is some risk involved: The printing process and store lighting can affect the shade that
the buyer sees on the box, and variability in the color application process and the individual’s hair type
can impact the overall shade.

Madison Reed’s product engineering team sought to resolve these issues by creating a proprietary
color-choosing algorithm on the company’s website and mobile app to help customers find their
perfect color match. When the time comes to applying the chosen color, a voice-activated, hands-free
mobile app guides customers step-by-step. The company also launched an AI chatbot, “Madi,” that
makes hair color recommendations based on a customer’s uploaded photo. Alternatively, customers
can upload photos of their hair in its current state and ask Madison Reed’s professional colorists to
make recommendations. The professionals are available through phone, email, and online chat.

As Madison Reed’s online sales grew, Errett also spotted a brick-and-mortar opportunity. Salons are
often inefficient from the customer’s perspective; visits can take several hours as salons balance
serving customers who come in for quick haircuts with those who come in for color. The number of
stylists and chairs constrains how many customers can be served in a day, not to mention the impact
on revenue per stylist, per chair, and per hour. To deliver color services in less time and at a lower
cost than traditional salons, Madison Reed developed the “Color Bar,” a specialty salon that offers
color services only. After a successful pop-up Color Bar in New York and the opening of two other
locations in 2017, the company now offers franchises in addition to corporate sites. The Color Bars
also offer consumers the option to purchase their color kits to take home—an option typically not
available in traditional salons.

By 2022, Madison Reed had cumulatively raised $337 million in funding, employed 253 staff, opened
84 Color Bars, and offered 60 hair color shades. To date, the company has pulled off a successful
omnichannel strategy whereby customers experience a seamless, common experience regardless of
the channel they use, whether brick and mortar, retail, or online. By 2024, Color Bars are expected to
generate half of the company’s sales, a jump from 30% in 2022. Madison Reed continues to balance
its primarily direct-to-consumer model with limited retail offerings at Ulta and Ulta Beauty at Target.
The company’s loyalty program is also a significant driver of sales. As of 2023, its online subscription
membership had 500,000 subscribers, and its in-salon membership had 30,000 subscribers. To
Errett, the company’s value proposition is an expression of her belief that “a confident woman is a
beautiful woman, and that women should demand more because they deserve more—not just in hair
color but in their lives.”

Critical Thinking Questions

1. What headache problems is Errett solving with Madison Reed?
2. Describe the importance of alertness in the context of Errett’s entrepreneurial journey.
3. Errett took her initial idea—disrupt the hair color market—and generated opportunities in
multiple channels: online, brick-and-mortar, and retail. Describe how you might expand an
idea of your own into several different directions.

Sources
Blair, A. (2023, April 27). Madison Reed CEO: “Your customers tell you everything if
you’re willing to listen.” Retail TouchPoints.
https://www.retailtouchpoints.com/features/industry-insights/madison-reed-ceo-your-
customers-tell-you-everything-if-youre-willing-to-listen

Chen, O. (Host). (2022, July 12). Understanding the hair color revolution with Madison
Reed [Audio podcast episode]. In TD Cowen insights. TD Cowen.
https://soundcloud.com/cowen_inc/cowen-insights-understanding-the-hair-color-
revolution-with-madison-reed

Foster, M. (2020, March 5). From problem to passion project: How 1 woman is changing
the hair color industry. Today. https://www.today.com/shop/see-how-1-woman-changed-
hair-color-industry-she-made-t175230

Greene, L. (Host). (2022, September 27). From funder to founder with Amy Errett,
founder and CEO of Madison Reed. Stairway to CEO [Video].
https://www.stairwaytoceo.com/episodes/from-funder-to-founder-with-amy-errett-
founder-and-ceo-of-madison-reed

Kolodny, L. (2014, January 28). Hair color startup Madison Reed raises $12 M for “tech-
enabled beauty.” Wall Street Journal. https://www.wsj.com/articles/BL-VCDB-13920

Madison Reed. (2018, May). Company

overview. https://d3ewrnwdcmri66.cloudfront.net/content/pdfs/2018/3/madison-reed-
company-overview-may-2018/madison-reed-company-overview-may-2018.pdf

Madison Reed. (2019, September 19). Madison Reed announces strategy to franchise
“Madison Reed Color Bars” with Franworth to accelerate national expansion [Press
release]. https://www.prnewswire.com/news-releases/madison-reed-announces-
strategy-to-franchise-madison-reed-color-bars-with-franworth-to-accelerate-national-
expansion-300921598.html

Madison Reed: Disrupting the hair color experience. (2017, May). Global Cosmetic
Industry, 42–43.
https://gcimagazine.texterity.com/gcimagazine/may_2017/MobilePagedReplica.action?p
m=2&folio=42#pg44

Martin, C. (2017, April 22). A rare path: From venture capitalist to hair-coloring kits. New
York Times. https://www.nytimes.com/2017/04/22/business/venture-capital-
entrepreneur-madison-reed.html

Popkin, H. A. S. (2020, July 17). How Amy Errett made Madison Reed the “hair color
house party women want
most.” Forbes. https://www.forbes.com/sites/helenpopkin/2020/07/17/how-amy-errett-
made-madison-reed-the-hair-color-house-party-women-want-most/

Sandler, E. (2023, April 12). Madison Reed retools memberships and adds loyalty
program amid rapid growth. Glossy. https://www.glossy.co/beauty/madison-reed-retools-
memberships-and-adds-loyalty-program-amid-rapid-growth/

Descriptions of Images and Figures

Back to Figure
The four quadrant and their respective values are as follows:

• Innovation: High degree of novelty, high value and usefulness.

• Invention: High degree of novelty, low value and usefulness.

• Improvement: Low degree of novelty, high value and usefulness.

• Irrelevant: Low degree of novelty, low value and usefulness.

Back to Figure
The steps from bottom to top along with a dialogue are as follows:
 • Find: I saw a clear problem and developed a solution.

• Search: I knew I wanted to start a business but was unsure what business to start. I
intentionally searched for different opportunities.

• Effectuate: I thought about what I knew, my skills, experiences, and abilities and developed
an idea that matched “me”. I created something and just started testing it.

• Design: I wanted to create something innovative. I started looking around, observed, and
talked to some people and identifies new, unmet needs Then I created something to meet
those needs.

Back to Figure
The y axis shows the percentage ranging from 0 to 80 percent in increment of 10 percent. The x axis
has the preferences along with the percent of women and men as follows:

• Believe they are capable of starting a business:

o Women: 57 percent.

o Men: 72 percent.

• Actually start a business:

o Women: 8 percent.

o Men: 10 percent.

Back to Figure
The y axis shows the percentage ranging from 0 to 100 percent in increments of 10 percent. The x
axis shows the ethnicity of entrepreneurs and their percentage of motivations as follows:

• White entrepreneurs:

o Motivated to build great wealth or a very high income: 67 percent.

o Motivated to make a difference in the world: 65 percent.

o Motivated to earn a living because jobs are scarce: 44 percent.

• Black entrepreneurs:

o Motivated to build great wealth or a very high income: 85 percent.

o Motivated to make a difference in the world: 79 percent.

o Motivated to earn a living because jobs are scarce: 52 percent.

• Hispanic entrepreneurs:

o Motivated to build great wealth or a very high income: 94 percent.

o Motivated to make a difference in the world: 67 percent.

o Motivated to earn a living because jobs are scarce: 47 percent.

Back to Figure
Line starts at row 1, column 3, runs diagonally to row 3, column through row 2, column 2. It then goes
vertically to row 1, column 1 and further extending top outside the exercise model. It then moves
diagonally to row 2, column 3 through row 1, column 2 and further extending diagonally outside till row
3. It then moves horizontally toward the left and ends at row 3, column 2 through row 3, column 3.

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